Opinion
No. 4:98cv91-C.
October 15, 1999.
MEMORANDUM OF DECISION
THIS MATTER is before the court upon cross motions for summary judgment and the written consent of the parties entered in accordance with 28, United States Code, Section 636(c). Having considered those motions and conducted a hearing, the court enters the following findings, conclusions, and decision.
FINDING AND CONCLUSIONS
I. Background
In this action, plaintiff is the stakeholder of the proceeds of a $250,000 life insurance policy on the life of Douglas Johnson ("decedent") to which competing claims have been made. Decedent's first wife, Elena Johnson, and her two adult children, Bridget and Jeremy, contend that they are entitled to the proceeds under the original policy provisions and the terms of a divorce decree. Competing with their claim is that of the decedent's second wife, Francis Johnson, and her adult daughter, Sara, who claim the proceeds under a change-of-beneficiary form, purportedly signed by the decedent, which was filed with the insurance company after the death of the decedent. This action is nearly identical to Lincoln National Life Insurance Co. v. Johnson, 2:98cv439 (E.D. Va.). In that case, Honorable Henry Coke Morgan, Jr., United States District Judge, held in a detailed opinion that under the terms of the final decree of divorce, Bridget and Jeremy Johnson were entitled to the proceeds.
In addition to their claim regarding the funds that have been interpleaded, defendants Francis Johnson and her daughter have interposed a counterclaim against the insurer in which they contend that if this court fails to award them those proceeds, the insurer is liable to them based upon the common-law torts of misrepresentation and breach of the contract of insurance. Plaintiff has sufficiently alleged that its liability ended when it paid into this court's registry the disputed proceeds and that it should otherwise be held harmless.
II. Standard Applicable to Cross Motions for Summary Judgment
On a motion for summary judgment, the moving party has the burden of production to show that there are no genuine issues for trial. Upon the moving party's meeting that burden, the nonmoving party has the burden of persuasion to establish that there is a genuine issue for trial.
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. In the language of the Rule, the nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving [sic] party, there is no "genuine issue for trial."Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted; emphasis in the original) (quoting Fed.R.Civ.P. 56). There must be more than just a factual dispute; the fact in question must be material and readily identifiable by the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). As cross motions for summary judgment would indicate, no genuine issues of material fact remain, and resolution of this interpleader action may be made as a matter of law.
III. Discussion
In conducting this analysis, the court has found highly persuasive the opinion of Judge Morgan. There is no argument that can be made but that the "children of the parties" do not, and cannot, include Sara Johnson. The Stipulation and Agreement entered into between Douglas Johnson and Elena Johnson provided, in relevant part, as follows:
[The] Husband shall maintain in full force and effect all insurance on his life, and the beneficiary of such insurances shall be the Wife until such time as a final divorce decree shall be entered by a court of competent jurisdiction. Thereafter the beneficiaries of such insurance shall be the children of the parties.
Agreement. ¶ 12. The agreement unequivocally provides that the "parties" are "Elena . . . [and] Douglas," and there is no dispute that Bridget and Jeremy are their only children. Under Virginia law, which governs this diversity case under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), the use of the term "children of the parties" derives from the Virginia Code, inasmuch as Code Section 20-108.1 provides for the maintenance of life insurance for the benefit of "children of the parties" to a divorce proceeding. The Virginia Code allows parties to incorporate separation agreements into the divorce decree and provides that such incorporated provisions are enforceable in the manner of all other provisions of the decree. Va. Code § 20-109.1. As Judge Morgan found, the Stipulation and Agreement was incorporated into the final divorce decree; under Virginia law, that formed a valid contract underSoutherland v. Southerland, 249 Va. 584, 588 (1995); and that contract required Douglas to designate and maintain Bridget and Jeremy Johnson as beneficiaries, unless and until the policy was modified in accordance with its terms. This court further finds that no provision of the agreement provided for termination of the contract upon Bridget and Jeremy reaching their majorities, and Virginia Code Section 20-111.1 does not operate to revoke the beneficiary designation of an ex-spouse where a divorce decree provides a contrary result for specific death benefits.
That issue resolved, the court will next turn to the argument of Sara and Francis Johnson concerning the found change-of-beneficiary form. As they did in the case before Judge Morgan, Sara and Francis contend herein that after Douglas's death, they found among his papers a change-of-beneficiary form that had been signed but not filed prior to his death. They further contend that they submitted the form to plaintiff, but that it was improperly rejected. Regardless of whether plaintiff accepted, rejected, or created confusion for Sara and Francis, the determination of who is entitled to recover the proceeds of the policy is, ultimately, for this court to determine.
For the purpose of ruling on the pending motions, the court has accepted as true the contention that Douglas signed the change-of-beneficiary form and that "filing" was accomplished when Sara and Francis mailed it in after his death. Virginia law clearly provides that "the right to change a beneficiary is a property right of the assured. . . ." Vellines v. Ely, 185 Va. 889, 898 (1947). As Judge Morgan noted, Virginia has yet to determine whether a contractual obligation arising from a divorce decree supplants such right. After an extensive review of persuasive authority from other states, and distinguishing the line of federal decisions which hold that divorce decrees must be held in derogation where Congress has mandated a different result in Federal Employee Group Life Insurance cases, Judge Morgan forecasted that "the Virginia Supreme Court would hold that a contractual obligation . . . takes precedence over the existing beneficiary designation and any expectancy of [Francis] or Sara." Lincoln National, supra, at 20. The holding of Judge Morgan, who sits in Virginia's Eastern District, is highly persuasive and will be given the same weight as the decision of a Virginia state court on issues of Virginia state law. Even if Douglas Johnson had signed the change-of-beneficiary form and filed it within the time provided by the policy, it would be null and void as contrary to his contractual obligation to Bridget and Jeremy. Applying Virginia law, this court finds that the contractual obligations of the Stipulation and Agreement, which were incorporated into the divorce decree, supersede the beneficiary designations of the policy and also supersede any expectation interest of Francis and Sara.
IV. Conclusion
For the reasons discussed herein, the court will grant the Motion for Summary Judgment filed by defendants Elena, Bridget, and Jeremy Johnson; deny the Motion for Summary Judgment filed by Francis and Sara Johnson; and order the Clerk of this court to distribute the interpleaded funds, with any interest thereupon accruing, in equal shares to Bridget Johnson and Jeremy Johnson in care of their attorney of record.
As to the counterclaim asserted against plaintiff by defendants Francis and Sara Johnson, the court will dismiss that claim with prejudice, inasmuch as those defendants had no right to the proceeds as a matter of Virginia law. With no damages capable of being alleged or proved, therefore, no cause of action can be sustained by them under Rule 12 (b)(6), Federal Rules of Civil Procedure.
Finally, counsel for Bridget and Jeremy has moved for the imposition of attorneys' fees, in addition to allowable costs, arguing that this action was frivolous. In every case, the prevailing party is entitled to recover certain enumerated costs. Attorneys' fees, however, are only allowed where there is particularly egregious conduct in maintaining the action by the nonprevailing parties. Fed.R.Civ.P. 11. The court cannot find that Sara and Francis Johnson maintained this action in bad faith or that their claim was frivolous. While the likelihood of success could not be judged as high in light of the well-reasoned opinion in Lincoln National, the maintenance of such claim was a good-faith attempt to have this court depart from Judge Morgan's persuasive, but not binding, opinion. Bridget and Jeremy will be allowed their costs upon application to the Clerk of this court made in accordance with Rule 54(d), Federal Rules of Civil Procedure, and the Local Rules of this court.
A judgment consistent with this decision will be entered simultaneously herewith.